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Module R11 · FMP 7–8, 10–11, 13–15, VRM 14–16

Derivatives pricing for the exam

Futures mechanics and basis, hedge ratios and beta hedging, cost of carry for financial and commodity forwards, option bounds and parity, the strategy catalogue, exotics, trees, Black-Scholes-Merton and the Greeks.

6 lessons · 20 interactive figures · 42 exercises

1. 1Futures markets, basis and the hedge ratio
   A hedge swaps price risk for basis risk. The minimum-variance hedge ratio is a regression slope, and the number of contracts is a rounding problem.7 exercises
2. 2Cost of carry: financial and commodity forwards
   A forward price is spot plus the cost of holding the thing until delivery, minus whatever it pays you meanwhile.7 exercises
3. 3Option bounds, put-call parity and early exercise
   Before any model, arbitrage alone pins an option between two lines. Parity ties calls to puts.7 exercises
4. 4Strategies and exotics
   Spreads, straddles, strips, straps, box spreads. Then the exotics catalogue with one line each.7 exercises
5. 5Binomial trees and Black-Scholes-Merton
   Both exist on the free site in depth.7 exercises
6. 6The Greeks and delta hedging
   Delta is the hedge, gamma is how fast the hedge goes stale, theta is what you pay for gamma, vega is the volatility bet, rho is usually ignored.7 exercises